‘Boring’ firms can sometimes be beautiful investments

Some investors may dismiss names such as fruit product maker J.M. Smucker, cigarette maker Altria, or spice and seasoning brand McCormick with regard to their appeal as investment targets, simply because the firms’ businesses look so old-economy and boring.

The investors would rather embrace companies that can change the world — names such as Facebook, Alibaba, Alphabet, Amazon, Tencent and the like. Given this, the new-age firms are more likely to figure at the top on the investment wish-lists.

But believe it not, numerous companies that are not sexy at all have done very well over the past decade, and some even outperformed certain star tech firms on the stock market.

For example, McCormick and JM Smucker saw their shares gain about 200 percent over the past ten years. Altria has done even better, chalking up a gain of 280 percent. During the period, Cisco was only up by about 80 percent and Microsoft up about 125 percent.

The beauty of investing in these low-profile but highly-profitable companies is that the investment return is usually less subject to whether you get the timing right.

In contrast, sentiment toward the so-called game-changer tech firms can vary a lot.

Those who bought Microsoft at the peak of the tech bubble had to wait 17 years before seeing the share price fully recover recently.

In another case, Cisco’s current share price is still nowhere near its historical high.

Not only is timing important to investing in the “exciting” businesses and tech firms, identifying long-term winners is often extremely hard.

Game-changers may sound exciting, but over the last half century the sectors that rewarded investors the most and were the least volatile were the consumer staples we cannot do without in our daily lives.

That is so, even though the firms’ products, ranging from pepper to toilet paper, look trivial.

The full article appeared in the Hong Kong Economic Journal in Chinese on Oct. 24

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